Phil DeMuth_

Global Giants and Diversifiers To Supercharge a Portfolio

Hi Roger --

Yes, you can calculate the monthly returns based on Yahoo! historical quotes or you can enter a transaction portfolio into Morningstar and they will keep track of it for you. You would still need to use Yahoo! to get the historical prices when you set up the portfolio, but from then on Morningstar would have it on autopilot for you. Good luck with it.

Global Giants and Diversifiers To Supercharge a Portfolio

Hi Roger -- You'll get no argument from me here, I love charts. Perhaps Geoff will put this idea in the hopper for QPP version 5.0. In the mean time, if you have QPP, you can enter the tickers and date ranges and do the analysis yourself.

Imagine that the 25%ile rank showed a loss of 1%. Then, a year later, the portfolio is down 1%. Is that a successful prediction? Perhaps. It would take a lot of samples to confirm -- you are likely to run out of lifetime before you accumulate enough data points, and by then it will be too late anyway.

So it's really the tails that are of interest, and why the past few months are so relevant to examine here. Since the whole thing is based on the currently unfashionable but nevertheless highly relevant normal distribution curve, all the information (Mean - 2SDs, for example) is really contained in the tail values. Unless I'm mistaken, the shape of the chart in every case would be a standard curve.

The issue of how to graphically present the risk/return tradeoffs in the most compelling way is one I often think about. For clients, I might present it as median expected return vs. 1 percentile loss at different equity allocations. I think this is more communicative than just mean vs. standard deviation.

Global Giants and Diversifiers To Supercharge a Portfolio

Mike & Geoff: Thank you for your comments.

Roger: Thank you for your helpful suggestion. I tend to take a rather unsophisticated view of these things. I look at where the estimated median returns are, and then I look at the 1st percentile value-at-risk for an educated guess as to what I might experience in a really terrible year, short of World War III. Then, if I can't do the time, I don't do the crime, and I make adjustments. As for the upside, I figure it will take care of itself. As Peter Bernstein says, I can't control the returns, but I can control (at least to some extent) the risk. This is part of the message of the book as well. We see people devoting endless attention to returns but insufficient attention to risk.